First Solar Comes Too Far, Too Fast; Jinko Misses Earnings

By Ben Levisohn

After yesterday’s monster rally, the knives have come out for First Solar (FSLR).

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The U.S. solar company gained 46% yesterday after the company offered an optimistic picture of its prospects in the years ahead. And perhaps unsurprisingly, they’re focusing as much on the move as much the fundamentals.

First up: Credit Suisse analysts led by Satya Kumar. They write:

Usually our commentary following an analyst day event centers on the takeaways from the event. But usually, stocks do not appreciate 45% following an analyst day. As we previewed, FSLR provided a new efficiency/cost roadmap, and beat 2013 consensus due to a change in revenue recognition policy on Desert Sunlight project (we had highlighted this too). Company is also acquiring a c-Si start up (not material, but we like the intent). But yesterday’s stock move not just priced in the upside from these positives, but that and much more by giving undue credit to a change in rev-rec policy. Execution, competition and market risks still remain not sufficiently discounted at current levels…Bottom line – we expect a pullback.

Pacific Crest’s Ben Schuman called the surge “an overreaction” and said that the company’s guidance was largely the result of an accounting change. He writes:

2013 EPS guidance of $4.00 to $4.50 was ahead of consensus of $3.51 and our estimate of $3.23. However, we estimate that $1.10 came from the change in GAAP revenue recognition on the Desert Sunlight project. The 2014 EPS target of $2.50 to $4.00 likely reflects over $3.00 of pulled-in earnings. Implied operational metrics—especially core project margins— were actually far worse than we were previously modeling. We also place very little faith in the 2015 target model, which relies on very aggressive assumptions.

Raymond James’Pavel Molchanov and Alex Morris, meanwhile, noted that “First Solar’s analyst meeting yesterday – its first in four years – certainly made a splash, but the sudden tidal wave of bullishness is not going to sweep us off our feet.” They call the rally a “overdone” and blame it on the massive short position in the stock. While they like the company’s balance sheet, they see the guidance for 2014 and 2015 as “aggressive,” and worry about the company’s ability to remain profitable “as U.S. utility-scaled projects roll off.” They keep the stock rated a market perform.

Northland’s Colin Rusch, meanwhile, expressed doubts about the ability of the company to reduce costs. He writes:

FSLR presented a 5-year plan at its analyst day yesterday detailing a 38% cost reduction for its CdTe technology. Our initial checks point to significant skepticism about FSLR’s ability to make the necessary technical steps in the short time frame to reach its goals, but until we have concrete evidence to the contrary, we are following the company’s guidance but note we maintain our cautious stance on shares.

Even the more positive reports sounded a note of caution. Susqueqhanna Financial Group’s Mehdi Hosseini raised his price target to $40, from $28, based on the new numbers. Still he kept the stock rated a neutral. “…we are also not ready to chase the stock since we need to gain incremental confidence in the company’s ability to increase backlog,” he says.

First Solar has dropped 6.5% to $36.82.

As if to reinforce the fact that the solar market is still tough, Jinko reported earnings this morning that missed analyst forecasts. Reuters has the details:

Chinese solar company JinkoSolar Holding Co Ltd reported its sixth straight quarterly loss due to a continued decline in solar panel prices, sending its shares down nearly 3 percent before the bell…JinkoSolar’s net loss widened to $122.2 million, or $5.51 per American depository share (ADS), in the fourth quarter, from $58.3 million, or $2.58 per ADS, a year earlier.

Shares of JinkoSolar (JKS) have dipped 5.9% to $5.46, while other Chinese solar companies that rallied on yesterday’s news are also down today. Yingli Green Energy (YGE) has tumbled 6.7% to $2.09 and Trina Solar (TSL) has dropped 5.2% to$%4.17. Suntech Power Holdings (STP) has gained 18 to 73 cents.

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APRIL 10, 2013 4:17 P.M.

gebby wrote:

with no plus tick rule for the shorts they can just lean on the stock price with the help of analysts cautious comments. Few analysts say buy. They are cautious with global warming becoming more manifest every year. Can analysts consider the implications of continued burning of fossil fuels if not more clean energy. And how much solar is needed to replace fossil fuels which must be replaced?

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Barron’s veteran Dimitra DeFotis has been blogging about emerging market investing since traveling to India and Turkey. Based in New York, she previously wrote for Barron’s about U.S. equity investing, including cover stories and roundtables on energy themes. Dimitra was among the first digital journalists at the Chicago Tribune and started her career as a police reporter at the Daily Herald in the Chicago suburbs. Dimitra holds degrees from the University of Illinois and Columbia University, where she was a Knight-Bagehot Fellow in the business and journalism schools. She studies multiple languages and photography.